DATEDNOVEMBER 5,2008 (1) LIMITED LIABILITY COMPANYNEFTEBITUM and (2)SIBERIAN ENERGY GROUPINC. and (3)LIMITED LIABILITY COMPANYKONDANEFTEGAZ OPERATINGAGREEMENT

(1)

LIMITED LIABILITY COMPANY NEFTEBITUM, a company incorporated in Russian Federation and registered by the Federal tax inspectionunder primary state registration number ###-###-#### and whose registered office is at 625049, Russian Federation, Tuimen City, 133 Moskovsky Trakt St.  (“Neftebitum”)

(2)

SIBERIAN ENERGY GROUP INC., a corporation incorporated under the laws of the State of Nevada, United States and whose principal place of business is at 275 Madison Avenue, 6th Floor, New York, NY 10016, United States (“SEG”); and

(3)

LIMITED LIABILITY COMPANY KONDANEFTEGAZ, a company registered in Russia under primary state registration number 1048600002901 and whose registered office is at 628011, Russian Federation, 63 Komsomolskaya St., Khanty-Mansiysk, Khanty-Mansi Autonomous Area (the “Company”, “KNG”), together “Parties”.

(A)

The Parties enter into this agreement in connection with item 7 of the Agreement of Purchase and Sale of a share in the registered capital of LLC Kondaneftegaz between SEG, Neftebitum, Prokopiev S.V and Shelepov O.G. (“Purchase Agreement”)and with the purpose to specify the methods of day-to-day operation of Kondaneftegaz.

(B)

The Purchase agreement mentioned in (A) transfers the controlling stake of 51% of KNG to Neftebitum, and charges Neftebitum with certain responsibilities in respect of management and providing financing to KNG.

1.

1.1

2.2

 

Neftebitum shall at all times under the terms of this agreement be entitled to appoint persons to the following positions or roles within KNG:

 

(a)

the General Director

 

(b)

the Finance Controller;

 

(c)

the Reservoir Engineer;

 

(d)

the Drilling Supervisor; and

 

(e)

the Logistic and Procurement Supervisor.

1.3

2.

2.1.1

The Operator shall have the exclusive discretionary charge of and management and conduct of all technical, management and operational and all associated matters involving KNG and the Karabashski-61, Karabashski-67 and potential hydrocarbon exploration and production licences (“Operations”).  The Operator shall manage and conduct Operations on behalf of the parties by itself, its agents, independent contractors and/or servants in accordance with the provisions of this Agreement in general accordance with standard oil and gas field practices.

 

-

prepare and coordinate, and get approval of the “Program of exploration works on the Karabashsky-61 and Karabashsky-67 license areas” within 12 months from the date of the state registration of the license on October 22, 2007;

 

-

begin 2D seismic works during the 2008-2010 fieldwork season and to perform not less than 176.26 linear kilometres of seismic profiles on Karabashky-61 and 158 linear kilometres on Karabashky-67 (minimal density of the profile not less than 1 linear kilometre per 1 square kilometre of license area); and

 

-

No later than 2011, to start drilling an exploratory well and to complete not less than 2 exploratory wells by April 1, 2012.

2.1.2

The Operator is authorised to enter on behalf of the Parties and KNG into such contracts as may be required for the implementation of the Operations, to supervise the implementation of such contracts and to make all payments thereunder on behalf of the Parties and KNG (and upon the receiving the same from KNG so that the Operator has no obligation to make any payment itself).

2.1.3

The Operator will oversee KNG in the process of negotiating of service contracts to ensure that the contracts are signed in the best interests of KNG. When the sum of such contract is over $300,000 the Operator must search for the best possible contractor and get price quotes from at least two potential contractors and should be able to provide the backup for the chosen variant. If in the process of the annual review the parties discover that KNG and the Operator were not acting in good faith, then the party at loss may request compensation of undergone profits.

2.1.4

Operator oversees that KNG establishes price policy on its hydrocarbon products with the view of the best available market prices for similar products in the region at the current time.

2.1.5

The Operator shall use all reasonable endeavours to:

 

(a)

provide each Party with copies of all engineering, geographical, geophysical, technical data, information and interpretations relating to the Operations as the Operator shall reasonably decide;

 

(b)

permit the authorised representatives of any of the Parties at such Party’s sole risk and expense to have access to the area where the Operations are being carried out  at all reasonable times and upon giving 48 hours notice;

 

(d)

represent the Parties in all dealings with the relevant authorities and   regulatory bodies, file all necessary reports and furnish copies of such reports to the Parties upon request;

2.1.6

The Operator may employ its own tools and equipment in drilling wells and in performing any other work within the scope of this Agreement or purchase it from third parties

2.2.1

The Operator, being the major participant of KNG controls financial position of KNG while signing contracts, including compensation of employees and amounts that would be payable to subcontractors of KNG. In this relation the Operator will guarantee payment under such contracts in case KNG becomes insolvent. Other participants of KNG are not financially responsible for the contract liabilities entered into by KNG under control of the Operator.

2.2.2

Expenses incurred by the Operator itself in the process of executing of its functions as an Operator may be summarized and billed to KNG for reimbursement. At the discretion of the Operator, if part of such expenses relating to execution of operator’s function was not charged to KNG due to its poor financial condition, then those expenses can accounted for at the time of distribution of profits between participants of  KNG.

2.2.3

The parties acknowledge that Neftebitum possesses adequate professional resources with extensive experience in oil and gas industry, which it will utilize as the operator. However Neftebitum hereby agrees not to charge operator’s management fees in connection with its role of the Operator until such time as the parties further agree.

2.2.4

The parties acknowledge the initial contribution by SEG by the way of providing to the Operator and KNG the geological information on Karabashski zone of Khanty-Mansi  Autonomous area (Tuymen region of Russian Federation) (“Geological Data”), which will be used in KNG’s research activities. However SEG agrees not to charge fees for the use of Geological Data until such time as the parties further agree.

3.

3.1

3.2

4.

4.1

 

The Operator shall use their reasonable endeavours to procure that KNG maintains with a well established insurer prudent insurance in accordance with current industry practice from time to time (subject to the same being available on reasonable commercial terms) against all risks usually insured against by companies carrying on the same or similar business.

4.2

5.

5.1

5.2

6.

7.

9.

10.

11.

12.

13.

address: 625049, Russian Federation, Tuimen City, 133 Moskovsky Trakt St.

 

Attn: Shadrin Nikolai Nelmanovich

Fax:

+____________

275 Madison Avenue

6th floor

New York, NY 10016

USA

 

Attn:David Zaikin

Fax:

+1 ###-###-####

628011, Russian Federation, 63 Komsomolskaya St., Khanty-Mansiysk, Khanty-Mansi Autonomous Area.

 

 

Attn: Company Secretary

Fax:

+______________

EXECUTED as a DEED by

)

Limited Liability Company Neftebitum

)

Director

)

Gainulin Rinat Gadulzhanovich

/s/ Gainulin Rinat Gadulzhanovich

Signature

EXECUTED as a DEED by

)

)

Chairman and CEO

)

David Zaikin

)

/s/ David Zaikin

Signature

EXECUTED on behalf of

)

)

)

Gainulin Rinat Gadulzhanovich

)

/s/ Gainulin Rinat Gadulzhanovich

Signature